Mid-October 2010 Greetings to All Traders, Here's to All Entering a Goog Trade,
The PFF ratio for GOOG is bullish.
POTC suggests you trade up to 10% of your aggressive portfolio with only one day left to expiration. We will send a Trade Update no later than one hour before market open Friday.
The PFF ratio for GOOG is bullish.
POTC suggests you trade up to 10% of your aggressive portfolio with only one day left to expiration. We will send a Trade Update no later than one hour before market open Friday.
BUY the GOOG OCT $570 CALLs
Please review the 11 Commandments and Government Options Disclosure before acting on this aggressive option trade suggestion; both are included at the end of this write-up.
The positive fundamental, technical, political and psychological drivers in Q3, some hidden:
Technology can be as fascinating as biology, and GOOG reminds us of an octopus morphing its colors and habitat from a marine search ad creature to a flying web application droid. From a land line consumer search company to a mobile business and consumer search and web application. Goliath remains mispriced, even after most say "the run is over"; how wrong they were with BIDU from $500 - $1,000 and a similar story could be upon us here. GOOG has 319M shares outstanding to BIDU's 348M, yet GOOG's sales are 3,000% (30X) greater, $861M to $26B in the last 52-weeks.
GOOG added 0.7 of a percentage point of search business in September; it holds 66.1% of the total market. We have considered Microsoft's (MSFT) Bing 11.2%, as well as Yahoo's! (YHOO) 16.7%; both lost ground in September. The 66.1% search market share is monopolous.
Here's the Previous 2 1/2 Years of GOOG's Sales and Earnings
| Sales - Quarterly Results (in Millions) | |||
|---|---|---|---|
| FY (12/10) | FY (12/09) | FY (12/08) | |
| 1st Qtr | 6,775.0 | 5,509.0 | 5,186.0 |
| 2nd Qtr | 6,820.0 | 5,522.9 | 5,367.2 |
| 3rd Qtr | 5,250E | 5,944.9 | 5,541.4 |
| 4th Qtr | NA | 6,673.8 | 5,700.9 |
| Total | 13,595.0 | 23,650.6 | 21,795.6 |
| Earnings Per Share - Quarterly Results | |||
|---|---|---|---|
| FY (12/10) | FY (12/09) | FY (12/08) | |
| 1st Qtr | $6.15 | $4.51 | $4.17 |
| 2nd Qtr | $5.78 | $4.70 | $3.97 |
| 3rd Qtr | $6.80W | $5.18 | $4.10 |
| 4th Qtr | NA | $6.22 | $1.22 |
| Total | $11.93 | $20.61 | $13.46 |
E = Average estimate.
W = Whisper estimate.
The fact Q3 sales are going to be lower comparatively while share price is rising hints at hidden/unknown underlying momentum in our opinion. Our Trade Alert suggestion expects EPS to come in above $6.80, and that would represent a 31%+ increase from last Y's Q3, even as lower sales are announced. We look forward to the highest operating margins in GOOG's history, and perhaps that will be the headline that prevents shares from the eventual pull of gravity. Though we don't expect it, a mention from CNBC's Jim Cramer would add another spark to CALL buyers.
We believe GOOG deserves a Price to Earnings ratio (P/E) 20% above the S&P 500.
Assuming a 20% premium to the S&P 500 Index makes sense to you, today's S&P P/E is at roughly 19, so after adding the 20% we came up with a 22.8 P/E for GOOG. After taking the $27.25 average Wall Street estimate for 2010, we arrived at $621.30/share. When we used the same P/E on AAPL for 2010, we came to a $330.60/share. So GOOG is 4% cheaper than AAPL, and that's with a better innovative tech year than most geeks could ever dream of. On the flip side, GOOG has lived through a "fall from the mountain". And we believe this disparity in valuation and psychology will turn in GOOG's favor beginning with these Q3 results and the conference call question and answer session.
The stock remains relatively inexpensive after experiencing global privacy and geopolitical fallouts in our opinion, especially related to mainland China. BIDU's forward 2011 P/E is 46 and GOOG's is 17. We expect this forward ratio to contract in GOOG's favor, but, will it be at the expense of:
1) GOOG's rise and BIDU's fall?,
2) GOOG's rise and BIDU's smaller rise?, or
3) GOOG's fall and BIDU's larger percentage fall?
We firmly estimate BIDU has hit at least a 52-week high and resistance in the $100 range and GOOG is just beginning to dust itself off from an oversold condition due to non-recurring negative factors.
Though BIDU has benefited from censorship of goog search, there is an unfolding Android story that many Wall Street analysts have not priced in to either 2010 and 2011 in our opinion. 40 high-profile analysts have 2011 Earnings Per Share (EPS) pegged at $31.31/share.
Let's estimate that 2011 EPS number is 20% too low because of the blow the global economy is waking up from as well as the mobile cloud explosion that is enveloping businesses and consumers. If GOOGexecutives admit to Android activities being a larger than estimated incremental global revenue producer going forward, Android smartphones could be on the verge of being branded more masculine than AAPL's iPhones. POTC believes U.S. business customers and male consumers are beginning to favor droids over all competition. And we estimate this Christmas and holiday season will witness this business and male trend to gain momentum.
From a technical standpoint, shares are above the 200 day line with a double bottom in the mid $400 range. We're also witnessing the lowest refinancing environment in U.S. history, perhaps thehidden fundamental Internet stream we addressed above ...
POTC cannot reveal all our sources and actionable information for competitive reasons related to an Internet subscription model, but we trust you enjoyed the psychology behind this mostly fundamental PFFratio Trade Alert.
Congrats to ALL subscribers who bought YHOO in the sub $14 range, we felt it was just too cheap. The Psychology of the Call team leaves you with this timely music video relief.
POTC's Eleven Commandments of Trading
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U.S. Government Required Disclaimer - Commodity Futures Trading Commission
U.S. Government Required Disclaimer - Commodity Futures Trading Commission
Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
All trades, patterns, charts, systems, etc., discussed in this advertisement and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of POTC.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
All trades, patterns, charts, systems, etc., discussed in this advertisement and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of POTC.
